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As artificial intelligence (AI) enthusiasm lifts markets across sectors, not all valuation gains are the same. Sr. Director, Client Relations Kevin G. Murphy, CFA, and Portfolio Manager and Sr. Research Analyst Daniel Pilling discuss how investors can distinguish between companies merely benefiting from the AI tide and those with true staying power.
Transcript
Kevin Murphy: In talking about the economics of AI, let’s touch on valuations. It feels like there’s a push and pull in the markets. It’s a rising-tide phenomenon where a lot of businesses, whether they truly deserve it or not, are getting a valuation boost from AI.
Daniel Pilling: If I take the semiconductor universe, companies trade anywhere from 15 to 25 times earnings for calendar 2026. Hyperscalers aren’t far off—closer to the higher end. Google’s a bit below, Microsoft a bit above, Amazon near the top.
One could argue these valuations don’t reflect certain possibilities. If humanoids suddenly become widespread and we manufacture tens of millions a year, that’s massively impactful for semiconductor content—much more than an iPhone.
We tried to do the math roughly—humanoids could be a much bigger revenue driver for Taiwan Semiconductor than the iPhone, which is currently their biggest customer. Add self-driving vehicles to that—also a large market with high silicon content.
It’s hard to know exactly when that happens, so the market struggles to price it in. The topics are widely discussed, but not necessarily reflected in current valuations.
For us, the good news is we can focus on the companies that truly deserve the rising tide—those with real competitive advantages that will monetize these trends. We don’t know precisely when, but likely within the next five years. And when that certainty comes, hopefully today’s valuations will rise accordingly.
Disclosures:
The views expressed are the opinion of Sands Capital and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities.
The views expressed were current as of the date indicated and are subject to change. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. All investments are subject to market risk, including the possible loss of principal. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase.
Unless otherwise noted, the companies identified represent a subset of current holdings in Sands Capital portfolios and were selected on an objective basis to reflect holdings enabling or potentially benefitting from the adoption of generative artificial intelligence.
As of June 20, 2025, Sands Capital strategies hold positions in Amazon, Microsoft, and Taiwan Semiconductor.
Any holdings outside of the portfolio that were mentioned are for illustrative purposes only.
The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. There is no assurance that any securities discussed will remain in the portfolio or that securities sold have not been repurchased. You should not assume that any investment is or will be profitable. A full list of public portfolio holdings, including their purchase dates, is available here.